FinCEN assessed a $75 million penalty against Hong Kong Entertainment (Overseas) Investments, d/b/a Tinian Dynasty Hotel and Casino, located in the Northern Mariana Islands, for what it termed “egregious” anti-money laundering violations.
In May 2012, IRS undercover agents posed as large-scale gamblers who wanted to use large amounts of U.S. currency at the casino without reports of that currency being filed with the U.S. government. According to the criminal indictments, the casino manager and the VIP services manager both agreed to assist the undercover agents (one posing as a Russian businessman) in using large amounts of unreported cash.
On three different days in February and March, 2013, the undercover agents allegedly made nine significant cash transactions above the $10,000 threshold, but these transactions were not reported on Currency Transaction Reports. According to FinCEN’s Assessment of Civil Penalty, the casino manager instructed the undercover agents to keep transactions below $10,000, termed a “magic number,” to avoid reporting, and that “conducting several transactions at $9,900 would appear suspicious.”
On April 19, 2013, a criminal complaint was filed, and according to FinCEN, law enforcement searched the casino shortly afterward and discovered over 2,000 unfiled CTRs.
In May 2013 the casino, the casino manager, and the VIP services manager* were indicted for failure to file CTRs on the undercover agents’ nine transactions. In September 2014, a superseding indictment was filed that dropped the two individuals (who according to reports are cooperating with the government) and added counts for failure to maintain an adequate BSA program and failure to file Suspicious Activity Reports. While the first indictment focused on CTRs related only to the undercover agents’ transactions, the superseding indictment also alleged that the casino failed to file 3,640 CTRs for more than $138 million.
The superseding indictment makes clear that the casino “failed to prepare or file accurate and complete CTRs for the undercover agent transactions.” What is unclear is whether inaccurate or incomplete CTRs were drafted but not filed; the superseding indictment includes a chart of the undercover transactions with a column, “Violation in Addition to Failure to File CTR,” which includes, “No CTR Prepared in UCA-2’s Name,” and “Amounts Recorded on” the wrong date,” and “CTR Does Not Fully Identify UCA-2.” It appears that the casino may have completed CTRs on the transactions, albeit incorrectly, but did not file them.
The count regarding failure to file SARs were related to the undercover agents’ transactions.
The government filed a second superseding indictment in November 2014. That indictment included more detail on the count regarding failure to file a SAR. Included in the list of suspicious activity was that “UCA-1 [undercover agent 1] conducted financial transactions in the name of UCA-2.” Tinian Dynasty is fighting the criminal charges, although there were reports that a settlement was awaiting DOJ approval.
FinCEN’s civil assessment largely parrots the criminal indictments. It adds that no person at the casino had day-to-day responsibility for the BSA, there was no independent testing of the BSA program, and no training on suspicious activity or recordkeeping requirements. FinCEN also notes that the casino never filed any SARs prior to its indictment (it is unclear if any SARs were completed but not filed, like the CTRs).
The pictures painted by the indictments and FinCEN’s civil penalty are of a casino that placed BSA at the bottom of the priority list. The fact that CTRs apparently were routinely not filed cuts against the argument that the casino was facilitating requests by large customers to avoid CTR reporting. Additionally, it is odd to complete a CTR on a transaction that you have no intention to report, and additionally to retain that CTR.
* In August 2014, FinCEN and the VIP services manager came to an agreement under which he was permanently barred from the financial industry and paid a $5,000 penalty.